IC engine, hybrid or EV:
As India joins the electrical vehicles bandwagon, A M Devendranath believes it will have to devise wise strategy for a smooth ride
Like the solar boom 5 years back, today, the electric vehicles is causing a similar disruption in the auto industry globally. India, today is at the cusp of deciding its future and it is important for everyone to get a 360-degree perspective of what it means and what would work for our nation. This article is an attempt to put all these perspectives in place and make a call on what would work for India.
Global development of EV’s and where it stands today
Most global observers and researchers are revising their electric-vehicle forecasts upward as improving battery costs challenge previous assumptions about growth. A new study from Bloomberg New Energy Finance, has shown that OPEC has drastically increased their EV forecast this year compared to the last year as shown in Figure 1.
This is largely due to developments in the lithium ion batteries and driven primarily by China in the world. China has bet heavily on the EV industry for many strategic reasons, namely:
Today, China is leading the world in terms of having the most capacity for lithium batteries (said to be building capacity for one million batteries a year) and have secured resources round the globe for lithium supply. On the demand side, they have been investing heavily on government subsidies to drive up demand and have plans to set goals for electric and hybrid cars to make up at least a fifth of Chinese auto sales by 2025, with a staggered system of quotas beginning in 2018.
It is going to create a national champion in batteries and is determined to close the gap with Korean and Japanese battery makers by 2020. To reach this ambitious target, the Chinese government offers substantial fiscal subsidies, at both the national and local levels. By the end of 2015, the Chinese national government had poured Yuan 33.4 billion (approximately $ 4.87 billion) into its EV market, and EV sales skyrocketed from 2,300 in 2009 to 507,000 in 2016. As many as a third of these sales were electric commercial vehicles (including buses, coaches, trucks, and vocational vehicles), while electric passenger car sales hit a record of 336,000 in 2016.
Strategic imperatives for India
For India today, there are many strategic imperatives for us now. Given below are some of them which can have an impact on our choice of going full EV or going the hybrid to EV route or sticking on to the IC engine based auto route.
Fuel Security: The most important aspect for a developing nation like us is the issue of fuel security. India currently depends on large-scale imports of crude to meet most of our mobility fuel needs. India’s gross petroleum import bill, including shipments of both crude oil and petroleum products, rose 9% last financial year to $ 80.3 billion on the back of 7% rise in volumes and 3% increase in the average crude price. If the current status quo is maintained, our energy consumption for motorised vehicles will increase from approximately 50 MTOE (million tonnes of oil equivalent) to over 200 MTOE by 2030. So, the question of maintaining a status quo on our motor vehicles policy for the long term is invalid and we need to look at every possible route to reduce our fuel consumption.
Reduction in carbon emissions: Along with the fuel security, one other important aspect facing India and its development goals is the urgent need to reduce our carbon emissions and meet our climate obligations. If the current status quo is maintained, our carbon emissions from motorised vehicles will increase from about 150 million tonnes to over 550 million tonnes by 2030. So, the question of maintaining a status quo on our motor vehicles policy for the long term is invalid and we need to look at every possible route to reduce our carbon emissions as well.
Lower power demand: One curious problem, which we have seen in the last 3-4 years, ever since most of the supply side issues in power generation (coal) were taken care of, is the issue of lack of growth of power demand in the country. Most power plants are operating at a PLF (plant load factor) of 55% in the country. This, coupled with an ambitious renewable energy targets and growth (over 175 GW by 2022), will lead to a serious case of oversupply and the viability of a crucial engine of the Indian economy (power sector) will be in serious question. Planners in the 11th and 12th 5-year plans had factored for a growth of 7% power demand in India while it has been stagnant for most years in the last 5-6 years and now (2016-17 vs 2015-16) it has reached a 4.08 % growth. A new source of power demand in terms of electric vehicles will be highly appreciated by the power sector. It may lead to a more stable power demand and that too from a ‘paying customer segment’ over the years and increase the viability of the sector.
Importance of auto industry in India’s economic interest
There is no doubt that automobile industry in India is one of the best examples of Make in India and has helped grow a strong manufacturing base in India. The diverse set of sub-assemblies and ancillary units that cater to the auto industry is a well-developed eco system in itself. Given below are some statistics to make it more meaningful:
The future of India’s mobility
India, began to take the emergence of EVs seriously only in the period 2009-10 and then started a series of discussion among various bodies and in 2012 a policy in the name of NEMMP 2020 (National Electric Mobility Mission Plan 2020) was launched. Under this mission, the government would use the following mechanisms/policies to increase the usage of electric vehicles in India:
Unfortunately, apart from launching this plan and a few pilot projects, nothing much was done on the ground in terms of implementation of this policy till 2015 when the new government came and launched FAME in April 2015.
In order to promote the sale of electric vehicles in the Indian market, the government launched FAME scheme (Faster Adoption and Manufacturing of Hybrid and Electric vehicles) in India, as a part of the NEMMP 2020, under which, the government would provide certain incentives to lower the purchasing cost of electric vehicles. The scheme has 4 focus areas - technology development, demand creation, pilot projects and charging infrastructure.
Overall, the government is expected to spend around Rs 14,000 crores for this scheme, which includes incentives to the customers for purchasing the electric vehicles, incentives to the manufacturers for research and development besides developing the charging infrastructure. During the financial year 2015-16, an amount of Rs 75 crores was allocated for this scheme, which was almost fully utilised. In the financial year 2016-17, Rs 128 crore (approximately) has already been utilized. Under this scheme, about 111,897 hybrid/electric vehicles (xEVs) have been given direct support by way of demand incentives since the launch on April 1, 2015. Department has also approved pilot projects, charging infrastructure projects and technological development projects aggregating to nearly Rs 155 crores.
The Union Budget for 2017-18 has allocated Rs 175 crore for promotion of green cars. The fund would be utilised for establishing 200 charging stations, granting incentives for 1.5 lakh vehicles, 200 electric buses and 1,000 electric government vehicles, besides creating infrastructure for making electric vehicles and research in battery technology. Incentives of about Rs 33 to 66 lakhs are planned for each electric bus which typically costs around Rs 1-2 crores (imported buses) and around Rs 50-80 lakhs (domestically manufactured).
Under the JNNURM (Jawaharlal Nehru National Urban Renewal Mission), NEMMP and Smart City plans launched by the government, various state and local transport bodies are expected to purchase electric buses over the next 5 years.
In 2017, the Government of India through extensive ministerial discussions has come out with a major policy document in terms of ‘Transformative Mobility For All’.
The NEMMP 2020 was extensively handled by Department of Heavy Industries till 2016. In 2017, a major Inter ministerial discussion on this took place which included the Prime Ministers Office (PMO), Niti Ayog (Planning Body), Department of Heavy Industries, Power Ministry, Ministry of Surface Transport & Roads, Urban Development Ministry, Petroleum and the Finance Ministry. From this emerged, a need to look at transforming the mobility in the country and reduce the dependence on fossil fuels and imports obligation on the country.
One of the key pillars of this transformative mobility is the emergence of EV’s and the EV infrastructure that is likely to be needed. Post this discussion, the Niti Ayog has come out with a report on the plans for the government for the Transformative Mobility Solutions For All.
This reports sets out the future direction from not just an auto industry perspective but looks at the future of mobility and the key essence of this plan is to move towards a mobility solution for India by 2030 which is ‘Shared’ (less personal ownership), ‘Connected’ (move towards a common shared platformed and various solutions are connected) and which is based on ‘Electric’ technology (preference towards EV over other forms in all modes of transportation).
This is brilliant report which has looked at various modes of transportation in terms of private and fleet ownership and has provided for a road map of each element to move towards EV. For example, 2W (private/fleet), 3W (fleet), 4W passenger vehicle (private/fleet) and buses (fleet).
The report calls for an early movement of fleet operated vehicles to move towards EV faster as it makes more economic sense to them rather than private owners (refer Figure 2).
Post this, in the launch of GST, EV were kept at the 12% levels, while Hybrids fall at the 43% levels (luxury products) - this has let to a lot of heartburn in the auto industry with major players and auto component industry focusing on hybrids seriously and there are now representations to give more weightage to hybrids as well and reduce GST on hybrids.
The impact of Goi's policy
on the auto sector
While, from a long term national perspective, the policy may make sense, the immediate impact of the policy on the Indian auto sector may be unsettling for many reasons:
One positive aspect that remains is that the private 4W segment will still require a longer time to move towards EV and this could be pushed towards hybrids with some policy interventions. This will also help the Indian auto sector to utilise the existing investments on this technology.
A M Devendranath is the Vice President of Feedback Consulting and heads the energy practice at the consulting firm. As the energy & power expert at Feedback, he boasts of extensive experience in leading engagements in this sector across the plethora of segments and sub segments within the sector. He has been part of over 850 engagements in Feedback spanning across energy, power, AC&R, metals and engineering products and services.